Thinking of setting up an advisory board? Here are the 5 key points to consider

Posted on 15 March 2017

As we saw in the first article in this series, 5 Reasons to accept being on an Advisory Board, advisory boards play a crucial role in the smooth operation, dynamic development and image of many companies, foundations and associations.

But what are the precise factors that should encourage an organisation to consider establishing an advisory board in the first place? And how should it be configured and operated? 

Motivations for setting up an advisory board are manifold and vary according to the specific needs and expectations of the organisations concerned. There are, however, a few important common principles that should be taken into account when considering setting up an advisory board.

 1.      The ‘why’ determines the configuration

The first key question must obviously be ‘Why an Advisory Board?’. What are the advantages it can offer over simple recourse to mentors, external expertise or the creation of a formal board? What kind of support do you need, and what would you like to achieve?

If you only require ad hoc support from time to time in very specific areas, you may not need to go into the trouble of creating and managing an advisory board. Maybe access to a few carefully chosen mentors is all you need at this stage in your development.

On the other hand, perhaps you could benefit from a wider range of on-going expertise and experience, as well as association with advisers whose calibre and reputation might serve to enhance the image of your organisation – and thereby provide immeasurable added value towards activities such as widening client bases, raising capital and fundraising.

Such careful preliminary reflection will not only help determine the kind of profiles and skill sets you’d ideally like to attract to your advisory board, but also helps ensure it is appropriately structured to maximise its contribution to the organisation’s success.

Once you have answered the ‘why’ question, the next basic consideration is then the optimum size of the board. To determine this, the specific circumstances need to be carefully weighed in advance. The number of members should be sufficient to meet the needs and expectations of the organisation, without being so many as to risk compromising efficient decision-making and functioning.

There are no right and wrong answers for the size. Rather it is a question of needs and balance. An international NGO running a development programme may require an advisory board of 15 or more people in order to ensure a range of interests and stakeholders are represented. In contrast, a start-up may be happy with an advisory board of no more than four individuals, each with specific specialist knowledge.

2.      The ‘what’ determines the ‘who’ 

Your next consideration must be quality. Clearly, it pays to invite individuals with the best possible credentials and connections for your advisory board. Such association with the right people can bring invaluable added value to your cause or company in terms of enhanced credibility, exposure and outreach.

Don’t be shy of approaching prominent personalities or even celebrities who you feel may be interested or inspired by your endeavour. If approached sensitively, they will usually be flattered by the invitation. The worst you risk is that they politely decline due to the extent of existing commitments. There is always the chance, however, that they may accept the invitation, and your cause or company will benefit immeasurably from their goodwill and active endorsement. 

Naturally, advisory board members should be selected in accordance with the specific needs of each organisation. A scientific programme will call for vastly different professional profiles and skill sets than a start-up needing help and advice with marketing. Bear in mind, therefore, the importance of tailoring the profiles of your advisory board to your anticipated needs and expectations. Select carefully from your shortlist of potential candidates and be sure to undertake the necessary due diligence and background research to avoid any unpleasant surprises.

Don’t forget that some egos can be a challenge to manage and it is vital to ensure that the individuals chosen are compatible and that they complement each other through their respective knowledge and experience. 

Membership of an advisory board does not carry any legal responsibility or fiduciary duties. It is, nevertheless, important to put in place some basic policies and procedures informing the persons concerned of their duties, terms of office and, where appropriate, remuneration. Clear provisions of this kind not only help manage expectations but also greatly facilitate recruitment.

3.      The ‘how often’ is determined by needs and efficiency

If the members are duly briefed on aims and expected outcomes, and in possession of all necessary background information, meetings of an advisory board can provide invaluable wisdom and support.

How often this kind of specialist counsel needs to be mobilised - i.e. the frequency of meetings - will vary significantly from organisation to organisation. Again, there is no set rule. It all depends on what works best. Some advisory boards simply meet bi-annually in order to review progress on a particular programme. Others convene monthly, as may be warranted, for example, during a particularly crucial phase of growth for a start-up.

The advisory board members will also usually be available for informal consultation in-between meetings if and as required. This can be a decisive additional resource during critical periods of development.  

In many ways, advisory board members are the ambassadors of your organisation. Invest time and thought, therefore, in familiarising them with all aspects of your company or cause. As said, make sure that they are regularly and systematically supplied with the best possible briefings, communications and promotional materials. It’s important that they feel involved, that their inputs are valued, and that they enjoy the respect and confidence of management and staff alike.

4.      The ‘how long’ is determined by the nature of the business

A term of office of two to three years is recommended. It gives sufficient scope and incentive for the members of the advisory board to commit fully to the company or cause, without running the risk of complacency or loss of enthusiasm setting in. This being said, certain scientific advisory boards frequently foresee longer term of offices.

5.      To compensate or not to compensate? – That is the question

As seen in the previous article 5 Reasons to accept being on an Advisory Board, involvement in an advisory board brings with it a number of intangible benefits and personal advantages for the individuals concerned. Indeed, I even came across one case where members actually paid for the privilege of sitting on an advisory board! 

Leaving aside such clearly exceptional circumstances, however, individuals are usually prepared to sit on the advisory board of associations or foundations on a pro-bonobasis, with no remuneration expected beyond re-imbursement of agreed expenses and the occasional meal. The same applies to start-ups, which frequently lack sufficient resources to pay per-diems.

Larger companies, on the other hand, usually have compensation schemes in place for the members of advisory boards.

Compensation schemes should be clearly described in the policies and procedures documents. 

Conclusion

Despite, or perhaps even because of its informal structure, an advisory board can be a remarkable asset in the pursuit of corporate governance and efficiency.

An advisory board contributes decisive added value to the smooth and sustainable development of the organisation and can make a tremendous difference to the life of a CEO. Indeed, it can provide a wonderful vehicle to help management maintain their finger on the pulse of the market and keep them abreast of the latest research, trends and customer satisfaction. 

Last but not least, as advisory boards complement the formal board, they provide excellent training for future directors.

I would welcome your comments on this article and, if your organisation has an advisory board, would particularly appreciate benefitting from your own experience and insights.

Links:

5 Reasons to accept being on an Advisory Board

Sibylle Rupprecht

Corporate Governance 

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